1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 31, 2016 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 RODOLFO DAGOBERTO CARRANZA 14 NO. 623951 (BH) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 26 27 Reported by: Jillian Sumner 28 CSR No. 13619 1 1 P R E S E N T 2 For the Board of Equalization: Fiona Ma, CPA 3 Chairwoman 4 Diane L. Harkey Vice Chair 5 Jerome E. Horton 6 Member 7 Sen. George Runner (Ret.) Member 8 Yvette Stowers 9 Appearing for Betty T. Yee, State Controller 10 (per Government Code Section 7.9) 11 Joann Richmond 12 Chief Board Proceedings 13 Division 14 For Board of Equalization Staff: Jeff Angeja 15 Tax Counsel IV Legal Department 16 17 For the Department: Scott Lambert Business Taxes 18 Specialist III Business Tax and Fee 19 Department 20 Kevin Hanks Chief 21 Business Tax and Fee Department 22 Stephen Smith 23 Tax Counsel IV Legal Department 24 For Petitioner: Rodolfo D. Carranza 25 Taxpayer 26 Linda Carranza Witness 27 28 ---oOo--- 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 31, 2016 4 ---oOo--- 5 MS. MA: Okay. Next case, Ms. Richmond? 6 MS. RICHMOND: Our last hearing for today 7 is Item C5, Rodolfo Dagoberto Carranza, please come 8 forward. 9 MS. MA: Okay. Mr. Angeja for the Appeals, 10 please introduce the issues in the case. 11 MR. ANGEJA: Madam Chair and Members, the 12 appeal before you presents two unresolved issues 13 which are whether any additional adjustments to the 14 amount of unreported taxable sales are warranted and 15 whether petitioner was negligent. 16 MS. MA: Okay. 17 To the taxpayer, please introduce yourself 18 for the record, and you'll have ten minutes to make 19 your presentation. You don't have to take the 20 entire ten minutes. And then after the Board makes 21 their presentation, you'll have an additional five 22 minutes. 23 MR. CARRANZA: Yes. 24 Good morning, everybody, Chairwoman and 25 Chair Members. My name is Rodolfo Carranza, and my 26 wife Linda would -- can I please ask the Board if 27 she could do, uh, the presentation for me? 28 MS. MA: Sure. Of course. 3 1 MS. CARRANZA: Good morning, everybody. 2 First of all -- oh -- 3 Good morning, everybody. 4 First of all, thank you for taking the time 5 to hear our case. Um, I tried to make it brief. 6 My -- our petition is for the, um, 7 negligence and the penalty and the interest to be 8 removed. And so we could, uh, basically, uh, finish 9 this, um -- how to say -- stage of our life and go 10 back to work on another business that we are, um, 11 planning to open. 12 If I may, I'm going to read this letter, 13 because I'm very nervous. 14 So, um, when we took over the Flamingo's 15 Night Club, the previous owner owed a lot of money 16 to the State Board of Equalization, which we paid. 17 We paid for the period of five years, $800, and the 18 payment was $10,000 to begin with. 19 We have owned businesses all of our lives. 20 We had our first taqueria in 1978. We've been 21 married 39 years. My husband went to the -- to the 22 marines, but the restaurant stayed in the family. 23 We had three children, and I raised a 24 family, and we continued to have our restaurant 25 throughout our lives. And then we had also a, um, 26 security company, and then lately we had the -- the, 27 um -- nightclub. 28 Now, the California Department and Beverage 4 1 Control conducted a thorough investigation. It was 2 actually an inspection in 2010 of our records that 3 showed our liquor vendors, which were Southern Wine 4 and Spirits, Young Markets, Maita Distributors and 5 Matagranos. 6 The ABC Department said that everything was 7 fine, but that we were true to all our records where 8 our liquor storage was. 9 Okay. Like I said before, we are 10 respectfully requesting that the amount owed to the 11 State Board of Equalization be changed to show 12 the -- either the actual amount of our taxes 13 sold -- you know -- and then take away the 14 negligence and interest and penalty. 15 The interest and negligence penalty should 16 be removed because we are presently in a payment 17 plan with the California State Board of 18 Equalization. Um, a monthly payment is taken from 19 our checking account. This complied with the 20 requirements put in place by the California State 21 Board of Equalization. 22 And I think you have a copy of my -- of my, 23 uh, bank account that shows the -- the amount taken 24 out. 25 The sales and use tax returns that we filed 26 were accurate and correct. 27 We are presently in a payment plan, like I 28 said before -- sorry -- and, um, you know, we -- we 5 1 have always cooperated with the State Board of 2 Equalization, and we will continue to do that. 3 Um, in our taxes they put in as the sales 4 tickets, uh, sales which were not taxable. They 5 also put in, uh, $3,000 that we were getting 6 in -- in payment for our restaurant that we had next 7 door. 8 Uh, we had never had, you know, over 100 9 people, and we certainly never opened the -- the 10 nightclub during the daytime. 11 In 2011, um, we only opened once a week, 12 and, um, we feel that the audit was, you know, 13 conducted wrongfully. They should have, you know, 14 went in person. And so what it was -- actually, the 15 auditor said that he did go three times on a Friday, 16 and we were closed. So that proves that we were 17 closed. 18 Okay. Like I said -- excuse me, I'm very, 19 very nervous. 20 My husband began working as a security 21 officer in 2012. We lost our business in 2011. We 22 were evicted in 2011. 23 And, uh, so I had a heart attack. I was 24 very ill for a while, so I didn't take care of the 25 paperwork. But I did call the auditor from the 26 hospital that I was ill. 27 Um, we have all the records of every other 28 year. I even have the -- the, um, lease from the 6 1 original owner from 1997. I keep everything. 2 What I didn't keep was -- I mean, we kept 3 it in the club. Those -- the landlord, when we were 4 evicted, he said he threw everything away; which 5 included our bar equipment, our pool table, you 6 know, all the equipment that cost a lot of money. 7 He said he threw it away, which he didn't -- well, I 8 don't know. Not the equipment, but our cash 9 registers, there were two of them, and all our 10 records that was in our desk. That's the reason we 11 don't have those records. 12 We were actually told, you know, to make up 13 some -- some -- uh, what's it called -- receipts. 14 We're not that kind of people. We're very honest. 15 We worked all our lives. We've been married 39 16 years. 17 We lost our son, and that has been really 18 devastating for us, because the business was for 19 him. He was only 29 years old. 20 I'm sorry. I'm sorry. 21 It's okay. 22 We are taking care of his children, my -- 23 our grand kids. And that's the reason we're here. 24 Otherwise, we wouldn't even bother. 25 Um, like I said, we have a small business 26 we were planning to open. But because of this case, 27 nobody wants to work with us. All of our relatives 28 are very scared. They say, "Oh, you owe all this 7 1 money, you know, what are you going to do?" 2 So we can't move on unless this case is 3 taken care of. And I really believe that if you 4 help us, you know, by taking the negligence, the 5 penalties, the late payment charges, we could work 6 with that. 7 And, like I said, we are very nervous, very 8 devastated because of every time we talk about our 9 business, we remember my son. He was only 29. He 10 was our bartender, he was our life. But, um, we had 11 to, you know, move on. 12 And thank you for your time. And, like I 13 said before, thank you for hearing -- hearing this 14 case, that it's been, like, going on for a long 15 time. And we are just asking for -- for help from 16 you guys to move on. 17 MS. MA: Thank you. 18 Thank you, Ms. Carranza. 19 Okay. To the Board, please introduce 20 yourself and commence your case. 21 MR. LAMBERT: Good afternoon, Chairwoman Ma 22 and Members. My name is Scott Lambert. To my right 23 is Stephen Smith, and to Mr. Smith's right is 24 Kevin Hanks, all representing staff. 25 In this particular case the taxpayer 26 operated a nightclub. They were audited for the 27 periods 2009, 2010, and 2011. The auditor attempted 28 to obtain records to conduct the audit. 8 1 Um, the records were not provided. Uh, it 2 wasn't until much later that the taxpayer notified 3 us that their records had been, um, disposed of. 4 So part of the problem with the audit was 5 trying to establish the sales. Taxpayer only 6 accepts cash; uh, they had no sales records; they 7 didn't have cash register tapes; um, the bank 8 accounts were only provided for a 9-month period, 9 which did not appear that all cash was deposited 10 into the bank. 11 That left the Department with what was 12 left. And that was, at the time, income tax 13 returns. 14 So, um, it was estimated based on the 15 income tax returns that the quarterly sales were 16 $51,000. That that was supported by the fact that 17 the taxpayer was open four days a week. It was 18 estimated that there were 100 customers a -- a day 19 based on the entertainment that would be provided 20 and the size of the business. 21 Based on those estimates, uh, assuming each 22 customer drank two drinks at $5 a drink, it came to 23 $52,000 for a quarter. And that was within the 24 51,000 that the Department had, um, established 25 using the income tax returns. 26 The taxpayer is on a payment plan, it is 27 not for this liability, it is for returns that were 28 filed, uh, without remittance. And, uh, currently 9 1 there -- there aren't -- there are not payments 2 being made towards this liability. 3 The taxpayer acknowledges, at least in the 4 year 2009, that they had four waitresses and two 5 bartenders. Based on what they were reporting, 6 it -- some periods averaged about $150 a day in 7 sales. They were open for five-and-a-half hours. 8 If you do the calculation down to how much 9 sales each waitress or waitperson would make, it 10 would range a little over one drink an hour. Um -- 11 and there were also two bartenders. 12 The income tax returns themselves appear to 13 be incomplete. The numbers are in even 14 thousand-dollar figures for three of the years. 15 There were no cost of goods sold reported on several 16 of the returns. There was no rent claimed. 17 Uh, the, um -- the wages that are being 18 paid were the same for the years 2009, 2010. 19 There's no evidence from EDD that the taxpayer had 20 filed returns with them for, um, employees. 21 In regards to the penalty, a penalty was 22 applied because of the lack of records and the 23 substantial underreporting. The percentage of error 24 was 469 percent, um, which is substantial. 25 The amounts that were reported on the sales 26 and use tax returns, the majority of them were 27 rounded to either the hundred dollars or 28 thousand-dollar figures. 10 1 The taxpayer also provided some information 2 with daily sales listed either on a calendar or in a 3 book, the -- with just a total circled. Those 4 numbers appeared to be below what the Department 5 would estimate the sales to be. 6 So accordingly, the Department concurs with 7 the Appeals Division decision and recommendation. 8 MS. MA: Okay. 9 Any rebuttal? 10 MS. CARRANZA: Uh, yes. 11 First of all, we had, uh -- I have all the 12 records from ADP of the employees I had. 13 We had, um, 14 employees until 2007. 2008, 14 uh, there was, um -- our business went down, I'm 15 talking about 80 percent. 16 So -- that was in 2008. Most of our 17 customers lost their homes, got, um -- went back to 18 Mexico. In other words, we lost all our -- most of 19 our customers. 20 So in -- starting in 2008 it was basically 21 just family helping. And we had events. They would 22 bring their own waitresses and an extra bartender to 23 help out. 24 Um, we ended up, uh -- renting -- or -- 25 yeah, I guess it would be renting. They would give 26 us $300 on Fridays in 2010. Two thousand -- uh, 27 from the, um, Cambodian -- was it Cambo -- 28 MR. CARRANZA: Polynesian. 11 1 MS. CARRANZA: -- Polynesian people, and 2 they -- they paid us and they used the club. So 3 that's the only times we were open on Friday. 4 2011 it was only one night, uh, a week. 5 And that was only my son, the bartender. There was 6 nobody else. 7 And, um, we never had that many people. I 8 mean, if we had had that many people, we would still 9 be in business now, you know. 10 We took $150,000 out of our mortgage -- out 11 of our -- not mortgage -- out of our house, um, to 12 pay back-rent and to keep our business. We almost 13 lost our house. We barely got it back, cleared, uh, 14 last year. 15 And, um, you know, we tried everything to 16 save our family business. Because, like I said 17 before, we've been in business all of our lives. I 18 mean, really working all the time. So we didn't 19 want to lose it. 20 But the landlord, he was really greedy, he 21 wanted all his back-pay -- uh, rent. Everything 22 that we put into the -- into the building, he didn't 23 count it. He leased it to somebody else and evicted 24 us. That was the reason I don't have the records. 25 Previous records and all my vendors, we 26 gave it to the auditor. The vendors' names, I mean. 27 He -- he was able to see what we bought. 28 We still had liquor over when we closed, 12 1 and we had -- we managed to give it away to -- what 2 was it in San Francisco? Was a -- 3 MR. CARRANZA: Old School Cafe. 4 MS. CARRANZA: Old School Cafe. We gave 5 the liquor that we still had left. 6 We did buy liquor at the beginning of 7 the -- of the year because it was on sale at the 8 time. So we had a big storage with our liquor. 9 Um, like I said, we never had that many 10 people that they are saying. If we had such a good 11 business, we would still be in business right now. 12 Um, I don't know what else to add, but, you 13 know that -- we are honest people. We don't -- we 14 don't -- we are paying all our taxes. 15 Our tax returns, uh -- again, in 2008 I 16 started doing it with somebody else. It was a 17 nonprofit in Oakland, California. And then she just 18 told me, "Oh, how much did you make? Give me 19 all" -- and she put everything in sales, even the 20 $3,000 we were getting for our restaurant that we 21 were renting out. 22 She put our ticket sales as -- as liquor 23 sales. 24 Even though that is there, we're -- we're 25 just asking at least to -- to base it on our -- our 26 taxes. You know, say these are our sales. 27 And then -- because we believe that if you 28 guys help us, um, you know, reduce the amount, we 13 1 could probably, you know, get on a payment plan or 2 something. 3 MS. MA: Okay. Thank you. 4 Mr. Runner. 5 MR. RUNNER: Yeah, just a couple of 6 questions just to clarify. 7 Um, the -- the, um -- they were currently 8 on a payment plan? 9 Um, the tax payers indicated that was 10 because when they bought the business there was a 11 liability that you had bought with that business? 12 MS. CARRANZA: No, we paid that off, um, 13 within five years. 14 It was 100,000? 15 MR. CARRANZA: It wasn't under our -- our 16 name, it was under the previous owner's name. And 17 when we took over, we agreed with the State Board of 18 Equalization to pay that -- the -- 19 MR. RUNNER: Okay. So that was part of 20 your negotiation in buying -- 21 MS. CARRANZA: And that was the -- yeah. 22 MR. RUNNER: -- the business -- 23 MR. CARRANZA: Yes, sir. 24 MR. RUNNER: -- was to do that. 25 So is that the payment plan we're talking 26 about? 27 MR. LAMBERT: No. 28 MR. CARRANZA: The one that he's talking 14 1 about -- 2 MR. LAMBERT: I -- I -- I can't discuss the 3 -- if there was any previous payment plan -- 4 MR. RUNNER: Right, right, right. 5 MR. LAMBERT: -- I can't discuss it because 6 it was a prior owner. 7 MR. RUNNER: Okay. Okay. 8 MR. LAMBERT: What -- what I can say -- 9 MR. RUNNER: Well, I guess that it -- it 10 sounds like it was a negotiated sale, part of the 11 sale they took on with BOE. 12 MR. LAMBERT: What I can say is for this 13 permit, the -- there was no successor liability 14 under this program. 15 MR. RUNNER: Okay. Okay. 16 To -- take me through again how we got to 17 our estimates. It sounded like it was the size of 18 the building, the -- 19 MR. LAMBERT: It was a review. The auditor 20 had, um, gone out to the building -- 21 MR. RUNNER: Right. 22 MR. LAMBERT: -- but they did not go in. 23 MR. RUNNER: Okay. So -- so -- so the 24 auditor went out to the building -- 25 MR. LAMBERT: Mm-hm. 26 MR. RUNNER: It was not -- there was not 27 people -- there were not -- it was not in operation. 28 MR. LAMBERT: At that time. 15 1 MR. RUNNER: Okay. 2 MR. LAMBERT: That's right. And then after 3 it had closed out sometime in the end of 2011 -- 4 MR. RUNNER: Okay. 5 MR. LAMBERT: -- the auditor was out there 6 in 2012. 7 MR. RUNNER: So -- so take me through then 8 the process for the -- for the estimating that took 9 place. 10 MR. LAMBERT: The auditor attempted to 11 calculate the liability based on purchases, which is 12 fairly common for this time. 13 MR. RUNNER: So we -- so we reviewed the 14 purchases that they got from their -- from their 15 suppliers? 16 MR. LAMBERT: Well, we pulled the vendors 17 to obtain the purchases. 18 MR. RUNNER: Right, right. 19 MR. LAMBERT: Uh, it did not appear that we 20 had all of them. They were, for each year, the 21 purchases, um, from memory -- and I can get the 22 actual number -- but I believe it was around -- or 23 7,000 to less in purchases per year -- 24 MR. RUNNER: Okay. So this -- 25 MR. LAMBERT: -- from the suppliers. 26 MR. RUNNER: Okay. So this -- so clearly 27 we did not have good data -- or good records in 28 regards to creating liability based upon suppliers. 16 1 MR. LAMBERT: Right. 2 MR. RUNNER: Okay. So suppliers didn't 3 work. 4 MR. LAMBERT: Suppliers didn't work. 5 MR. RUNNER: Okay. So then where'd we go? 6 MR. LAMBERT: And then we attempted to get 7 the records from the tax payer -- 8 MR. RUNNER: Right. 9 MR. LAMBERT: -- and they didn't provide 10 them to us. 11 MR. RUNNER: Right. Okay. So no records. 12 MR. LAMBERT: Right. 13 MR. RUNNER: Okay. So then where'd we go? 14 MR. LAMBERT: And then we had -- we 15 requested the income tax returns. 16 MR. RUNNER: Okay. 17 MR. LAMBERT: And we obtained those for the 18 years 2008 and 2009. 19 MR. RUNNER: Okay. We got those. 20 MR. LAMBERT: Right. 21 And 2008, the year had expired, uh, for our 22 billing purposes, so we just concentrated on the 23 year 2009. 24 MR. RUNNER: Right. 25 MR. LAMBERT: We took a look at the figure 26 that was reported on there, and it was 100 and -- I 27 believe it was $102,000 -- 28 MR. RUNNER: Uh-huh. 17 1 MR. LAMBERT: -- in gross receipts -- 2 MR. RUNNER: Right. 3 MR. LAMBERT: -- on there. But there 4 wasn't any cost of goods sold that were claimed for 5 that. 6 MR. RUNNER: Okay. So we looked at their 7 income tax returns, felt that they were 8 incomplete -- 9 MR. LAMBERT: They were incomplete. 10 MR. RUNNER: So we didn't use those. 11 MR. LAMBERT: We did use those. 12 MR. RUNNER: Oh, we did use those. 13 MR. LAMBERT: We did use those. 14 MR. RUNNER: Okay. 15 MR. LAMBERT: And, um -- because we had 16 nothing else to go from. 17 MR. RUNNER: Right. 18 MR. LAMBERT: And so what we did -- 19 MR. RUNNER: I thought that's what they had 20 asked for. They said, "Just use our -- our income 21 tax." 22 MS. CARRANZA: Yes. They doubled it, three 23 times. 24 MR. LAMBERT: So we doubled the amount that 25 was reported on the 2009 income tax -- 26 MR. RUNNER: Okay, okay. So we didn't use 27 their income tax returns? 28 MR. LAMBERT: Well, we used their income 18 1 tax returns -- 2 MR. RUNNER: And then we -- and then we -- 3 MR. LAMBERT: -- to establish our 4 liability. 5 MR. RUNNER: Okay. We used their income 6 tax returns but then we doubled it? 7 MR. LAMBERT: That's correct. 8 MR. RUNNER: Okay. Well, it sounds like 9 then we didn't really use theirs, we used -- 10 MR. LAMBERT: Well, we used -- 11 MR. RUNNER: -- ours. 12 MR. LAMBERT: -- it as a basis, but, um -- 13 yeah. 14 MR. RUNNER: Right, right, right. We re -- 15 we re-figured their income tax. 16 MR. LAMBERT: That's right. 17 MR. RUNNER: Okay. So then -- so then -- 18 so then it wouldn't be -- so the liability isn't 19 based upon their income tax -- 20 MR. LAMBERT: They're not -- 21 MR. RUNNER: The liability is based upon 22 our -- our change of their income tax. 23 MR. LAMBERT: That would be, uh -- 24 MR. RUNNER: Okay. 25 MR. LAMBERT: That would be correct. 26 MR. RUNNER: So then what got us -- then 27 what got us to the point of us then doubling their 28 income tax? 19 1 MR. LAMBERT: Well, we took a look at what 2 we would consider for that type of business, and the 3 fact that we were unable to obtain any records from 4 the tax payer -- 5 MR. RUNNER: Right, right. So what'd we 6 do? 7 MR. LAMBERT: -- after asking from them. 8 MR. RUNNER: So what'd we do? 9 MR. LAMBERT: So we came up with that 10 number. Now to -- 11 MR. RUNNER: Which is -- how we got -- how 12 did we get that number? 13 MR. LAMBERT: The hundred -- the audited 14 amount? 15 MR. RUNNER: The doubling of the income 16 tax; how'd we get there? 17 MR. LAMBERT: We just doubled the amount, 18 based on the fact that there were no cost of goods 19 sold claim. 20 So even in this type of business, if you're 21 assuming that that's their gross receipts, um, 22 uh -- well, I guess you would assume that it's 23 their, um, gross profit -- that a mark up for that, 24 if you went back to what the sales would -- should 25 probably have been three-and-a-half times that 26 amount, based on the fact that generally these type 27 of businesses have about a 300 percent -- 28 MR. RUNNER: And we did that based upon the 20 1 fact that in their income tax they showed no cost 2 of -- 3 MR. LAMBERT: That's right. 4 MR. RUNNER: Okay. So that's -- so we 5 assumed that their income tax, then, was their 6 profit. 7 MR. LAMBERT: Um, well, I would say their 8 net -- 9 MR. RUNNER: Their net. Their net. 10 MR. LAMBERT: I'm sorry -- no, I take that 11 back. 12 MR. RUNNER: Oh. 13 MR. LAMBERT: Their gross profit, the -- 14 MR. RUNNER: The gross profit. 15 MR. LAMBERT: It would be the gross profit 16 before you deduct -- you take the deductions. 17 MR. RUNNER: Okay. 18 MR. LAMBERT: That's right. 19 MR. RUNNER: Let me ask, I thought I heard, 20 when you were talking about the liability that we 21 were talking about the size of the building. Did I 22 misunderstand that that there were some estimates 23 based upon -- 24 MR. LAMBERT: Well, there were some things 25 the auditor also went on. 26 MR. RUNNER: Okay. Why did -- when the 27 auditor -- did -- was this -- were they in business 28 when we were auditing them? 21 1 MR. LAMBERT: No. 2 MS. CARRANZA: Yes. 3 MR. RUNNER: Oops. Hold on. 4 No, you were not in business when they 5 audited you. 6 Okay. Okay. So that's how we kind of came 7 up with the liabilities at that point -- 8 MR. LAMBERT: Right. 9 MR. RUNNER: -- in that series. 10 MR. LAMBERT: Right. And then there is the 11 analysis that you would do after that that would 12 support the figure that we came up with. 13 MR. RUNNER: And what'd you -- how'd we 14 figure employee -- and the employees were based -- 15 because you ended up with employees in, and did a, 16 kind of a math thing in regards to how many drinks 17 they were going to have to sell with that many 18 employees. 19 MR. LAMBERT: Well, that -- that was not 20 used in the calculation. 21 MR. RUNNER: Okay. 22 MR. LAMBERT: I -- I mentioned that as an 23 analysis -- 24 MR. RUNNER: Okay. 25 MR. LAMBERT: -- of the figures that they 26 reported and how much -- 27 MR. RUNNER: Okay. 28 MR. LAMBERT: -- would have to be sold by 22 1 them. 2 MR. RUNNER: Okay. Thanks. 3 MS. MA: Any other questions? 4 Ms. Harkey -- Oh, Ms. Stowers. 5 MS. STOWERS: One question. 6 Was this the first audit? 7 MR. LAMBERT: It was. 8 MS. STOWERS: That would speak to the 9 penalty. Okay. 10 MS. MA: And how many businesses have you 11 had, to the taxpayers? 12 MR. CARRANZA: We had, uh, the first 13 taqueria in Redwood City. 14 MS. CARRANZA: In 1978 when we got married. 15 Um, and then we had, uh, a restaurant, (inaudible) 16 and then the Soup or Pollo in Oakland. And then -- 17 MR. CARRANZA: That was a family 18 business. 19 MS. CARRANZA: Yeah, family business. 20 MS. MA: Okay. 21 MS. CARRANZA: And this last one, um, uh, 22 it was a nightclub, and then a restaurant. The 23 restaurant because we were working in the nightclub, 24 we couldn't work in the restaurant. So we rented it 25 out. So they paid us $3,000 a month. That was 26 included in our taxes. 27 The person that did our taxes for -- 28 starting 2008, '09 and '10, uh, there were, uh -- 23 1 what is the -- benefit? You know, where you don't 2 pay. Because we couldn't afford it. We couldn't 3 afford to make our taxes, so then she did it. So 4 she just grabbed the figures and did it like that. 5 That's why nothing is separated. 6 MS. MA: Okay. 7 MS. CARRANZA: Like they -- they -- 8 MS. MA: Okay. So that should have been on 9 the separate schedule? 10 MS. CARRANZA: Everything -- yeah. 11 MS. MA: Yeah. Instead of all on one. 12 MS. CARRAZNA: Now, after reading a lot of 13 things, now I understand. But at the -- 14 MS. MA: Yeah. 15 MS. CARRANZA: -- time -- 16 MS. MA: Yeah. 17 MS. CARRANZA: -- we trusted her, and she 18 did the taxes. 19 Now, 2012, '13 and '14, we did it now with, 20 uh, H&R Block, so -- but -- 21 MS. MA: Okay. And so since 1978 have you 22 filed sales tax returns with the State Board of 23 Equalization? 24 MS. CARRANZA: Yes. 25 MS. MA: And did you have any other 26 problems, audits? 27 MS. CARRANZA: Never. 28 MR. CARRANZA: We have the one with the 24 1 restaurant, we're paying $25 on that, and then 2 $100 -- 3 MS. CARRANZA: I know, but she's talking 4 about audit. 5 MR. CARRANZA: Oh. 6 MS. CARRANZA: We've never been audited 7 before. I didn't even know what it was. And the 8 person that did the auditing, did it -- they -- they 9 told me they based it on the Internet. 10 Now, the Internet has -- we didn't put 11 anything on the Internet. They put -- people post a 12 lot of stuff on the Internet that are not true. 13 Like that I will -- we open on Thursdays all day 14 from 9:00 a.m. to 2:00 a.m. 15 I mean, a lot of things are not -- 16 MS. MA: Yeah. 17 MS. CARRANZA: -- true on the Internet. 18 MS. MA: Yeah. 19 MS. CARRANZA: So, you know, we -- we were 20 really upset about that because the person -- 21 I thought we were open in 2011 when -- I 22 thought it started 2011, the audit -- 23 MR. CARRANZA: We -- we were evicted on, 24 uh -- 25 MS. CARRANZA: No, but the audit -- I'm not 26 sure if it was '11. I thought it was '11. I guess 27 I was wrong. 28 MS. MA: It's fine. 25 1 MS. CARRANZA: Sorry. 2 MS. MA: Okay. Thank you. 3 Ms. Harkey. 4 MS. HARKEY: Okay. This is for the 5 taxpayer. 6 Thank you for coming in. 7 Are the sales reported on your federal 8 income tax returns for 2009, '10 and '11 accurate? 9 MR. CARRANZA: The federal taxes? 10 MS. HARKEY: To the best of your -- 11 MR. CARRANZA: Yes. 12 MS. HARKEY: As I understand it, is it -- 13 is it that your books and records were discarded by 14 your landlord? 15 MR. CARRANZA: Before we could pick them 16 up, we had already, uh -- we didn't want to go 17 through the processing of eviction. So we -- I 18 called him and I gave him the keys and I told him I 19 was going to come back and pick up some of my items. 20 By the time we came up -- back, he had 21 already changed all the locks. All our decorations, 22 we had palm trees in there, he had brought them out 23 to the parking lot and put them out there. People 24 were grabbing things out thinking it was junk. And 25 our desk, it was a big metal desk, he took it out. 26 By the time that we went to recover it, it 27 was gone. It was an open parking lot, and the gate 28 was open. And people were just coming and picking 26 1 up chairs and whatever they could put on their 2 trucks. So whoever took the desk took our papers -- 3 our paperwork. 4 MS. HARKEY: Okay. I understand. 5 MS. MA: Okay. Sorry. 6 Any -- no? 7 Okay. Is there a motion on the table? 8 MS. HARKEY: I'm willing to make a motion. 9 I would like to, uh, move to reduce 10 un-reportable taxable sales to 255,135, which uses 11 the petitioner's federal income tax returns to 12 establish audit to taxable sales. 13 And also move to abate the negligence 14 penalty on the basis this was their first audit. 15 MR. RUNNER: Second. 16 MS. MA: Is it just for the one year, or 17 are you talking about -- 18 MS. HARKEY: I'm talking about -- 19 MS. MA: -- because it's a three-year 20 audit. 21 MS. HARKEY: Right. I'm talking about the 22 total taxable amount for 2009, 2010, um -- right. 23 For all -- 24 MS. MA: 2011. 25 MS. HARKEY: For all -- for all three 26 years, right. 27 MS. MA: You want to use their tax returns 28 for all three years? 27 1 MS. HARKEY: All three years. 2 MS. MA: And abate the negligence 3 penalty. 4 MS. HARKEY: Abate the negligence 5 penalty. 6 MS. MA: Okay. 7 MS. STOWERS: What was the amount again, 8 please? 9 MS. HARKEY: I have here -- and maybe one 10 of my staff members can -- can text me. But I have 11 here that it's 255,135 is the total amount. 12 Right now -- right now the taxable amount, 13 I believe the Department can confirm, is 504,394. 14 MR. SMITH: Mm-hm. Correct. 15 MR. HANKS: That's the amount that's 16 underreported -- 17 MS. HARKEY: Right. And so I want to 18 reduce it to 255,135, which uses the income tax 19 returns filed by the petitioners. 20 MR. SMITH: As total sales or underreported 21 sales? Do you mean total sales? 22 MS. HARKEY: As their -- the audited 23 taxable sales. 24 MR. SMITH: Audited taxable sales. 25 MS. HARKEY: I want to be specific here. 26 MR. HORTON: How does that compare to 27 report -- 28 MR. ANGEJA: You'd still subtract reported 28 1 from that. 2 MS. STOWERS: So what's three point -- 3 MR. RUNNER: I was just gonna reduce the 4 liability -- 5 MR. HORTON: That's not -- 6 MS. STOWERS: That's not the liability. 7 You need to start with unreported -- unreported 8 taxable sales. 9 MS. HARKEY: You told me how to make this 10 motion. 11 MR. RUNNER: There's a -- let me -- there's 12 a -- let me suggest to the -- we can either do it 13 that way, but I think we may get it a little messed 14 up in regards to -- 15 MS. HARKEY: Okay. 16 MR. RUNNER: -- how to calculate that. 17 MS. HARKEY: Here it is. 18 The gross receipt for tax returns: 2009 was 19 102; 2010 was 185; 2011 was 75,741, a total of 20 362,741. 21 Total sales reported to Board of 22 Equalization were 107 for the three years, 107,606. 23 So the difference, the understatement would 24 be 255,135. 25 MR. RUNNER: So base the liability on that. 26 MS. HARKEY: Base the liability on the 27 understatement. Because they had gross receipts per 28 their income tax returns, a total of 362,741. They 29 1 reported sales of 107,606. 2 So the difference in the understatement 3 would be 255,135. That's what I want to base the 4 tax on. And I want to remove the, uh, negligence 5 penalty. 6 MS. MA: Okay. 7 MR. RUNNER: That's a second. 8 MS. MA: Okay. 9 Does everyone understand the motion? 10 Okay. All right. 11 Without objection? 12 Okay. Without objection. 13 Thank you very much for coming in. 14 MR. CARRANZA: Thank you, and for listening 15 to us. 16 MS. MA: Yes. 17 MS. HARKEY: Thank you. 18 MS. CARRANZA: Can I just ask one question? 19 What -- what do we do after this? 20 MS. MA: Why don't you talk to our 21 attorneys, and they'll let you know, and -- 22 MS. CARRAZNA: Oh, okay. Thank you. 23 MS. MA: Thank you. 24 ---oOo--- 25 26 27 28 30 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Jillian Sumner, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on August 31, 2016 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 30 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: October 6, 2016 18 19 20 ____________________________ 21 JILLIAN SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 31